İnönü initially founded the SODEP in 1983 with the intention of contesting the 1983 general election. However, the National Security Council that had been established following the 1980 military coup banned İnönü from standing for office. Standing down as chairman in order to be replaced by a politician that could seek office, İnönü was succeeded by Cezmi Kartay. However, SODEP was banned completely from contesting the election, resulting in İnönü taking over as leader for a second time shortly after. His party contested the 1984 local elections and came second with 23.4% of the vote. SODEP merged with the People's Party in 1985 and İnönü became the leader of the new Social Democratic Populist Party (SHP) in 1986. In the 1986 parliamentary by-elections, the SHP came third with 22.7% of the vote and İnönü was elected as a Member of Parliament for İzmir. He was the only successful SHP candidate.

Following the 1991 general election, the SHP formed a coalition with Süleyman Demirel'sTrue Path Party (DYP) and İnönü became Deputy Prime Minister. He briefly served as the acting Prime Minister in 1993 after Demirel was elected President. After the DYP elected Tansu Çiller as their leader and she formed a government, İnönü continued as Deputy Prime Minister until he resigned as party leader in 1993. He later served as Foreign Minister in 1995 until he stepped down as an MP in the 1995 general election.

Although the military government banned İnönü's party in 1983 elections, SODEP managed to survive and became the second party in 1984 local elections. In November 1985 SODEP and another party named People's Party (Halkçı Parti) formed a union, the Social Democratic Populist Party (SHP). According to consolidation agreement İnönü briefly lost his post. But he became the leader of SHP in May 1986. SHP was one of the parties which weighed the heaviest in Turkey's political scene during the late 1980s and early 1990s. İnönü challenged the liberal conservative party of Turgut Özal, ANAP, both in 1987 and 1991 elections. One of the main reasons why SHP could not win an election was the division of the moderate left votes between SHP and DSP, the party of the former CHP leader Bülent Ecevit. Erdal İnönü was also a member of the Socialist International. He joined discussions as the Deputy Chairman of the organization.

In the summer of 1993 he announced that he would not run for the leadership of the party in the coming congress. During the 4th general congress of the party on 11–12 September 1993, he resigned from the leadership of the party and consequently he also resigned from his post in the government. Murat Karayalçın replaced him in both posts. In February 1995 SHP and recently refounded Republican People's party (CHP) merged. Upon Erdal İnönü's suggestion the new party was named CHP. In CHP Erdal İnönü was given the title of honorary chairman. In 1995 he served as the Minister of Foreign Affairs for about six months.